The Anglo File: BT Offers Unmetered Net Access, but Deal Shouldn't Hurt Revenue

BT's new Internet packages will likely make very little cost difference to the average Net user.
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LONDON -- At last,

British Telecom

(BTY)

has succumbed to pressure from the government, regulators and the public to offer unmetered access to the Internet. A closer look at this apparent concession, however, shows that it is unlikely to do much harm to BT's top line.

BT announced Tuesday that, subject to ratification by the telecom watchdog

Oftel

, it plans to offer all customers a variety of packages for dial-up calls to the Internet starting next spring. Currently, Internet users are charged pay-as-you-go rates of 4 pence per minute during peak hours, 1.5 pence during the evenings and 1 pence on weekends.

BT's "Surftime," as the program is known, includes a Weekend Internet Option, which will charge users 6.99 pounds per month for unlimited access on the weekend, and on weekdays a charge of 2 pence per minute during the day and 1 pence per minute in the evening.

There is also an Anytime Internet Option, which comprises a charge of 34.99 pounds per month for unlimited access anytime, and a Daytime Internet Option, for which there is a charge of 26.99 pounds per month for unlimited access during weekdays, and 1 pence per minute outside of that.

At first glance this would seem to be a victory for the public and the end of perceived grossly inflated revenue for the much-vilified former incumbent operator. In November, BT reported that domestic call volumes, on a 12-month moving average basis, grew by 11%, 25% of which were dial-up calls to the Internet, fueling a 21% rise in its second-quarter revenue. The market appears to share this pessimistic view, with BT's shares ending Tuesday down 2.3% at 14.27 pounds.

A closer look at the economics of the packages, however, tells a rather different story. While the packages will do something to appease the regulators and other Internet players, all of whom have singled out BT as a prime obstacle to the broad uptake of the Internet in the U.K., it's unlikely to dent BT's sterling revenue growth.

Admittedly, for heavy daytime users -- such as this correspondent, whose monthly Internet bill is approximately 200 pounds per month -- the new package will offer some welcome relief. However, for the vast majority of users, who connect to the Internet from home in the evening, it is unlikely to make much difference.

According to Frazer McLeish, analyst at

Investec Henderson Crosthwaite

, the average Internet user is online for 16 minutes every evening. At today's rate of 1.5 pence per minute in the evening, the cost per month to the user would be around 5.52 pounds compared with the 6.99 pounds under the new Evening Internet option.

"Customers will be able to use the Internet more, but for the average user it doesn't look particularly great," says McLeish. Investec has no investment banking relationship with BT.

The new pricing package may also tempt new users to BT's own ISP

BT ClickFree

and bring in all the attendant expected revenue from that source, such as advertising and e-commerce. The new tariffs will be available to people who use ClickFree, and those ISPs that have signed up to BT's new revenue-sharing deal, which was announced last month.

Under that agreement, BT reckons ISPs will pay BT about 10 pounds a month for each consumer's calls to their service, allowing ISPs such as

Freeserve

(FREE)

to add an extra amount and offer an unmetered monthly package to its subscribers. Unfortunately, many ISPs use alternative telephone operators and this pricing package was criticized as a way for BT to force such ISPs out of business.

Ultimately, Simon Carrington of

Schroders Securities

, believes that, "net-net ... there is little overall financial impact" on BT with this package, meaning he is keeping his outperform rating on the company. Schroders has no investment banking relationship with the telco.

In fact, the only real problem for BT is getting Oftel to approve the plan. As the pressure group the

Campaign for Unmetered Access

(known by the appropriate acronym CUT) pointed out following BT's announcement, "We always said unmetered access simplified things, but, obviously, there are many questions to ask.

"We will be asking them," CUT warned. This story is by no means over.